Emerging market borrowers raised just over $100 billion worth of debt in the first quarter of 2014, slightly below year-ago levels as geopolitical noise and uncertainty over US Federal Reserve plans dampened investor appetite. Emerging sovereign and corporate issuers launched $106.2 billion in hard currency bonds between January 1 and March 27, data compiled by Thomson Reuters shows, well below the $124.5 billion that was launched in the first quarter of 2013.
The shortfall was most pronounced in company debt, with issuance running at $67.5 billion, compared to just over $100 billion in the first three months of 2013. An end of year rush took total debt sales for 2013 to a surprise $450 billion record. That was driven by borrowers racing to get their funding done before US Treasury yields - on which most emerging debt is priced - rose any further. The Fed has started cutting back on its monthly bond buying, and signs are the first rate rise could come in 2015, potentially pushing borrowing costs even higher.
The big obstacles for borrowers this year were military tensions between Russia and Ukraine, fears of default in the latter and Western sanctions on Russia. "People have been holding back because of the Russian issue and as that subsides, the market will open up again. We should see a spike in issuance in the next two weeks," David Hauner, head of EEMEA fixed income strategy and economics at Bank of America Merrill Lynch, said.
BofA/Merrill estimates sovereigns raised $35.5 billion in bond markets by March 21 while companies sold bonds worth $79.3 billion. It predicts 2014 sovereign issuance at $100 billion. Issuance figures often differ because of the way each compiler defines emerging markets.
Azerbaijan debuted on bond markets this quarter, raising $1.25 billion. Other issuers included Hungary with a $3 billion bond, while Brazil's Petrobras sold $8.5 billion in multi-tranche bonds and Mexico came with a 100-year sterling issue. Despite Fed worries, few expect emerging borrowers to face refinancing problems, as sovereigns such as Hungary and Turkey have already completed a third of projected 2014 issuance. J.P. Morgan said in a note that companies had raised a fifth of the $294 billion they forecast for the entire year. Also boosting the market, emerging dollar debt has returned 3.5 percent this year after 2013 losses of 6.6 percent. The gains are due to a 25-basis-point fall in underlying US Treasury yields.
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